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Sunday, December 26, 2010

Last week, federal prosecutors sketched out what they said was an $80 million scheme to defraud a giant information technology project to automate the payroll system for New York City employees. The participants in the fraud essentially stole the money for their own enrichment, billing the city for work they did not do, the prosecutors charged.

But some city officials had huge concerns as far back as 2003 about the integrity of the project, whose costs have ballooned by hundreds of millions of dollars.

In a scathing letter made available on Monday through a state Freedom of Information Law request, the city official in charge of overseeing the project, known as CityTime, accused the company that designed CityTime, SAIC, of repeatedly delaying the project in order to get paid more, failing to hew to basic industry standards and rewriting contracts on its own. The official even predicted, sarcastically, that SAIC would try, in a year’s time, to charge the city “8,000 hours” for shoddy work.

The letter, dated Feb. 19, 2003, offers a devastating critique of the company, and raises questions about the city monitors of the project — the mayor’s and comptroller’s offices. And the consultants hired to ensure quality control, it appears, were doing very little of it.

In the letter, Richard R. Valcich, executive director of the city’s Office of Payroll Administration, assailed SAIC, a giant engineering company based in McLean, Va., for conducting numerous reviews without approval from the city, other than to “further delay the project and, of course, increase SAIC’s costs.” Mr. Valcich also said “a certain level of professionalism and compliance with acceptable industry standard practices is expected of a contractor for the execution of a $100 million-plus project.”

The cost of the project is now more than $600 million, and counting.

Stating that SAIC’s “commitment to quality is almost nonexistent,” Mr. Valcich also described a document outlining SAIC’s plans to finish the project as a “straw man” and said “the cost in ill will, damage to SAIC’s credibility and reputation within the city, and reduction of expectations within SAIC’s team are a high price to pay for this document.”

Marc LaVorgna, a spokesman for Mayor Michael R. Bloomberg, said the administration was reviewing the 2003 letter. But he pointed out that Mr. Bloomberg did say, in remarks on Monday, that the city was “determining what future role SAIC can have on the project and which SAIC employees can have a role in it.”

Mr. Bloomberg added: “We just have zero tolerance, absolutely zero tolerance, for any kind of corruption whatsoever. And going forward, we’ve taken some steps to ensure this doesn’t happen again.”

A spokeswoman for the city comptroller, John C. Liu, whose audit this year highlighted some of the issues that eventually surfaced in the federal indictment, said Monday that the letter reinforced his concerns about SAIC. In September, Mr. Liu announced that he was withholding $32 million to SAIC until June, contingent on its full and timely completion of the CityTime project.

“This 2003 letter, and moreover the lack of discernible follow-up to it, was key to solidifying a strong consensus within our office that the contract should not be renewed,” said Sharon Lee, the spokeswoman for Mr. Liu. “Serious questions have long been raised about this consultant’s ability and intent to deliver quality on time within budget.”

When asked about the letter, Laura Luke, a spokeswoman for SAIC, said, “SAIC recognized the deficiencies in the CityTime program in 2003 and worked closely with the city on assessing and fixing the problems addressed in the February 2003 letter.”

Ms. Luke added: “A year after the February 2003 letter, the city told us we were working well together and approved our personnel, approach and overall architecture. This weekend, the CityTime system will be expanded to over 100,000 city employees.”

Mr. Valcich retired in 2004. He did not return phone calls on Monday seeking comment about his letter.

But Mr. Valcich’s successor as executive director, Joel Bondy, could figure in the investigation, which is continuing. Mr. Bondy, who has not returned calls for comment after six people were indicted in the case on Wednesday, is close to Mark Mazer, who is accused of being the mastermind behind the scheme. On Thursday, Mr. Bondy, who has not been charged, was suspended without pay.

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